Overcompensation control of Czech photovoltaic power plants

April 12, 2018

photovoltaic, power plants, overcompensation, green energy

State Aids: Promotion of electricity production from renewable energy sources

In the second quarter of 2017, the Czech government passed legislative proposal, presented by the Ministry of Industry and Trade, as a response to European Commission’s measure (European Commission Measure, Subject: State Aid SA.40171 (2015/NN) – Czech Republic Promotion of electricity production from renewable energy sources, C(2016) 7827 final, Brussels, 28.11.2016 Find the document at the end of the article as downloadable PDF) introducing an inspection mechanism against the overcompensation of the subsidized energy sources. This decision should ensure that the financial support granted to the power plant owners is in line with rules issued by the European Commission and that the legal entities are not being overcompensated.

Make renewable energy technologies competitive

The main objective of subsidies, in compliance with the rules of effectiveness, is to level up competitive conditions in the industry, and thus to make certain renewable energy technologies competitive, not to artificially raise investor´s earnings. The inspection will ensure that Czech national subsidy regime for renewables is not overcompensating the power plants which are now mature self-sufficient technologies. If present, overcompensation will be corrected. The inspections themselves should take place during the year 2018 and onwards.

Subsidies for the renewable energy market

The way renewable energy markets function and the effect of subsidies in the sector has been the subject of much debate in the Czech Republic in recent years. By supporting renewable energy EU tries to lower its dependence on imported fossil fuels and make its energy production more sustainable, however many argue that renewable energy subsidies and cooperating legal arrangements in the Czech Republic were misused in order to arrive at extensive earnings.

Green Energy: Photovoltaic energy in the Czech Republic

Many large photovoltaic energy power plants have been built in period 2008 – 2010, because Czech government guaranteed purchase prices of the „green energy“ and payback period of 15 years, essentially making photovoltaics a riskless investment. In 2008 the total photovoltaic power output in the CR was only 40 MW, whereas in 2010 it was already 1 959 MW.  One of the main issues was that even though the purchase prices of photovoltaic technology had been brought down by cheap technology in years 2009 – 2010, the subsidies were not adjusted accordingly. The government guarantee and manipulating with the prices eventually affected every energy consumer via imposed fee for supporting renewable energy.

Power plants: Inspections of border values

The subject of inspection are the power plants constructed from January 2006 to December 2015, which were granted the support that sums up to more than 200 000 EUR in three consecutive years. According to the Ministry of Industry and Trade this criteria should fit 3 349 power plants, however, only 726 will undertake the individual inspection. Other power plants will be pooled and inspected based on a random pick.

The overcompensation threshold is defined by the maximum value of the internal rate of return. The border values are set to be 8,4 % for water plants, wind plants and photovoltaic power plants, and 10,6 % for biofuels (biogas, biomass).

The inspection will be carried out by the State National Inspection. If the subject is found to be overcompensated, standard administrative procedure will take place. Correction will be settled by either lowering future subsidies or shortening the period during which the subject will be supported in the future, it also cannot be ruled out that the legal entity will be forced to return excessive subsidies.

If you need more information about subsidies for green energy projects, about the inspections of the Czech government regarding the overcompensation of photovoltaic power plants or general advise about Energy projects in CEE contact TPA energy experts!

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